The tale is as old as time: you want to buy at a lower price, and the seller wants to sell at a higher price.

And you really like this business. 

So how do you bridge the gap?

In acquisitions, this conflict has been around for as long as deals have. But there are effective ways to tackle it – and they involve thinking beyond the number alone.

With two decades of experience in buying businesses and consulting on over 300 transactions, I’ve learned that closing this gap isn’t just about price. It’s about understanding the dynamics of risk, growth potential, and, most importantly, deal structuring.

Here’s a breakdown of how experienced buyers tackle this issue and the top 7 factors that all good deals have in common, so you can spot them during your search.

 

The Price-Value Dilemma: Look Beyond First-Order Thinking

When buying a business, it’s easy to think that every dollar added to the purchase price theoretically increases your risk. This concept views the purchase price as a reflection of quantified risk. The more you pay, the more you’re exposed financially.

This might lead you to stop the deal here – a high asking price is simply “too risky” and it’s time to walk away. However, seasoned buyers think about this differently. Rather than focusing solely on a low purchase price, they think in terms of deal structuring: Tell me the price, and I’ll tell you the terms.

Structuring a deal can take many forms – seller financing, earnouts, deferred payments, or equity rollovers, to name a few. By thoughtfully employing various deal structure mechanisms, you can often bridge the price gap and create a win-win situation. 

I’ll never forget the first time I sold a business through a broker and tested this strategy.

The broker confidently told me what he could sell it for. Wanting to maximize the amount of money I could get from the deal, I countered, “How about 20% on top of that?”

He chuckled and replied, “Walker, I can sell this business for a billion dollars – with the right terms. Say, $1 a day for a billion days.”

His point? The more cash you defer to the seller, the higher the purchase price can go.

Or in other words, the terms make the deal – not the purchase price.

 

Source: EXIT Brokers

 

Experienced buyers get deals done by thinking beyond just the purchase price. By strategically aligning the terms, you can reach a price that works for both parties.

 

Why Experienced Buyers Are Willing to Pay More

Interestingly, experienced buyers – those who’ve bought multiple companies over the years – are often willing to pay higher prices for them.

While this may seem counterintuitive, their perspective shifts from just focusing on price to considering the quality and potential of the business. In private equity and acquisition entrepreneurship, the question isn’t simply about getting the best deal but rather ensuring the right fit for long-term value and growth.

For seasoned buyers, the potential for business growth, strong cash flow, and smooth operations outweighs the immediate “deal” mindset. Businesses have value for a reason, and experienced buyers know that the true return comes from executing well after the purchase, not just securing a low initial price.

 

The Role of Market Value: Establishing a Fair Price Range

That said, is the purchase price completely irrelevant in a deal?

Or in other words, isn’t there a fair price somewhere between high and low? 

That’s a great question. Every business transaction does have a price range, from low to high, within what’s considered fair. At the low end, you’re typically looking at the minimum acceptable price, while the high end represents the maximum in a fair range.

Unlike buying stocks on the stock market where your money is liquid and your portfolio is diversified across a number of investments, buying a business is different. Acquisition entrepreneurs often only buy a few businesses over their careers – meaning each acquisition has to be a success.

When you buy a business, you’re buying at a specific moment in time, within a range that reflects current market conditions, seller motivations, and buyer goals.

 

Source: Mercer Capital

 

In the Acquisition Lab, we cover the different elements that influence this range, like the seller’s reasons for selling, market trends, and more.

Again, interestingly, experienced investors are often drawn to businesses priced at the upper end of this fair range. 

Surprising? Yes, but it’s often the mark of seasoned thinking.

 

What Increases Business Value?

So if we’re evaluating a business that’s priced at the higher end of the fair market value range, what factors have contributed to its value and purchase price?

In other words, if you want to emulate seasoned buyers, what should you look for in a business?

 

1. Highest Growth Potential

In real estate, there’s a common thought process: you make money when you buy. 

This idea works because real estate assets have a relatively fixed market value that grows gradually, maybe 1-3% annually, with returns often coming from cash flow and modest appreciation. You may get a 6-10% cap rate, and value can increase with improvements, but it’s largely a stable asset.

Buying a business is fundamentally different. Here, the real value lies in the growth potential – the upside you can achieve through smart execution. In fact, with acquisitions, most of the money you make from a business comes at the exit, not the buy. 

So, while we’re taught to focus on minimizing risk upfront, experienced investors know that true value is unlocked through execution and growth, not just the purchase price.

By figuring out what your unique skill sets are and honing in on the right growth opportunities, you can find a deal that has the greatest potential for you to fulfill as the incumbent CEO.

 

2. Savvy Operator in Place

When a business runs like a well-oiled machine, it’s usually because a focused, skilled, and determined individual has been steering it. Success isn’t accidental; it’s a product of careful planning, learning, and taking calculated risks, which is why it’s valuable.

The traits that make someone a savvy operator are the same ones that make him or her a savvy seller. 

Over the years, operators learned to “fire bullets, then cannonballs” (as Jim Collins puts it) in testing ideas, then going all-in on what works. This approach leads operators to build solid, profitable businesses, so when these owners decide to sell, they’re just as strategic in preparing for the sale.

 

Source: Acquira

 

One fact you may not know is that savvy sellers tend to work with brokers instead of trying to sell their businesses as off-market deals. 

Why? Because for entrepreneurs, their business is their most valuable asset. Selling is a one-time opportunity, and they want to maximize that value – not by taking advantage of buyers but by ensuring they get the best possible outcome.

Savvy sellers are prepared with a go-to-market strategy and are informed about their business’s worth. To get a favorable transaction, buyers often find that these sellers have conditions well-aligned with market value.

In short, below-market deals usually require below-market conditions – and savvy operators rarely fall into those.

 

3. Carefully Mitigated Risk

When a savvy operator is at the helm, he or she will carefully manage certain risk factors, which are correlated to the business’s value and purchase price.

Take customer concentration as an example.

Imagine you’re evaluating a business that brings in $1 million in revenue. You ask about its customer base and find out they have only one customer, accounting for all revenue.

Unfortunately, this isn’t really a business; it’s a customer dependency. 

Now, say there are two customers, each contributing 50% – still risky. Or perhaps there’s a larger base of 100 customers, but one generates 35% of the revenue. That level of concentration poses a substantial risk, especially common in smaller businesses.

Now, consider if this savvy operator understood these risks and worked strategically to reduce them.

 

Source: Faster Capital

 

Maybe they spent the last three years lowering customer concentration to 10% or less, either by diversifying the customer base or attracting new clients without increasing reliance on the big ones. By proactively managing these risks, the operator has made the business more stable and appealing, which, in turn, drives up its fair market value.

Reducing these types of risks makes the business less vulnerable for the buyer, which experienced buyers are willing to pay for.

 

4. Smooth Cash Flow (Recurring Revenue is Even Better)

Another key factor that can drive a company’s value higher is smooth cash flow.

For example, I recently evaluated a business where 108% of its annual earnings came from December alone, while the other 11 months collectively lost 8%. That’s not just “lumpy” cash flow – it’s a business entirely dependent on one month’s performance. If December underperforms, the whole year’s financials are jeopardized.

In contrast, a business with steady earnings month after month, or even consistent growth, has much stronger cash flow. This smooth cash flow reduces the need for large working capital reserves and provides the business (and owner) with financial stability, allowing for faster growth and more resilience against economic shifts.

The ideal scenario is recurring revenue – where customers are charged monthly for a recurring service (or product). Recurring revenue ensures dependable income, making the business more attractive to conservative investors seeking long-term stability.

 

5. Ability to Consistently Attract and Convert Customers

Businesses with a demonstrated ability to attract and convert customers through reliable sales processes are solid gold.

Whether it’s through a sales representative, a marketing strategy, or other methods tailored to B2B or B2C models, having a reliable process in place to bring in customers and convert them consistently is key.

When a marketing and sales system is already built and functioning effectively, it significantly boosts the company’s value. 

The reason? As a buyer, you’re not investing with the hope of implementing a growth strategy – you’re acquiring a business with a demonstrated method that already works.

This proven capability means you can start generating returns immediately, which increases the value of the business for a buyer.

 

6. Thoughtful, Well-Planned Sale (Not a Distressed One)

You’ve seen stores with big signs saying, “LIQUIDATION SALE!” drawing you in for a good deal.

You might wonder if the owner is in a pinch — some type of personal distress that forced his or her hand to sell the business.

 

Source: Photo by the blowup on Unsplash

 

Although a business closing grabs our attention (and maybe even our wallets), a savvy buyer looks at similar business deals as yellow flags.

These types of events that necessitate a quick sale are referred to as either the four Ds or five Ds – Death, Disability, Divorce, Drugs, or Disaster. These situations often put sellers under pressure, creating opportunities for buyers to acquire a good business quickly and at a lower price.

If a CPA calls you saying a widow needs to sell a business by Friday, this is likely to yield a below-market deal with favorable terms, provided you can move swiftly and have cash available.

However, if a business is being sold under distress, there’s a good chance it won’t have the stability or market position you’re looking for, and it would be more of a headache than it’s worth.

You’d think a savvy buyer would actively seek a distress sale, but it’s usually the opposite.

In cases where the business is not being sold due to a 5D event, it’s often led by a savvy operator who’s thoughtfully preparing for a sale. The seller understands their business’s value, has been running it smoothly for some time, and is knowledgeable about the market. This makes for a well-run, high-quality asset, priced according to its value and stability.

Buying from a well-prepared seller is more advantageous to an experienced buyer than a “steal of a deal.” 

 

7. Easy Transferability

Last is transferability. For a business to command a high valuation, it must operate independently of the owner’s specialized knowledge or personal involvement.

I once spoke with an owner who was struggling to sell his company, and it quickly became clear why: he personally handled everything – from finding clients to delivering the work. This wasn’t a transferable business; it was essentially him and some equipment. Ultimately, I advised him to liquidate, as the company wasn’t viable for sale.

A truly valuable business is one that doesn’t rely on the owner to function. 

If the owner is too integral to daily operations, the business becomes difficult to transfer and, therefore, less appealing. A solid business with a transferable structure, documented processes, and competent staff is likely to command a higher price.

 

Source: NSKT Global

 

Another key to transferability is having tight, validated financials. Clean financials – where tax returns align with internal statements and, ideally, are even audited – allows the buyer to gauge true performance and value and make due diligence straightforward. This level of transparency significantly enhances the business’s market appeal.

 

From Bargain Hunting to Value Building

These are the factors that drive a business’s value higher.

Yet, many buyers approach acquisitions thinking they’ll find a business they can buy with little to no money down – perhaps from someone motivated to sell quickly, like a recent widow. The idea is to score a bargain and walk away with a great deal.

But the question isn’t what you can get the deal for — it’s what can you do with it now that it’s yours?

When you step in as CEO, can you keep the business thriving? If you can’t, that “low price” was actually quite high because the risk was in your ability to lead the business.

Rather than risking operational challenges with a below-market deal, focus on businesses that already have the components you want as a buyer – steady cash flow, proven processes, and transferable structure.

My advice: Stop chasing shiny objects and, instead, look for one where you can add value and take it to the next level. 

Paradoxically, the very factors that make a business valuable are often the ones we, as buyers, hesitate over because they feel like added risk.

If you’re a savvy buyer, you’ll be able to recognize that this is precisely what sets up a strong acquisition opportunity.

By shifting your mindset from “buy low” to “buy well,” you’ll be better equipped to make acquisition decisions that yield long-term success.

Ready to acquire a business in the next 12 months? The Acquisition Lab is your first stop. Reach out to us today and get on the fast track to becoming an acquisition entrepreneur.